Sime Darby - Potential EPS dilution of up to 3.1%

Transcription

1. 8 September 2016 Potential EPS dilution of up to 3 .1% Company Update A proposed private placement should strengthen shareholder funds, reduce gearing and provide funds for capex. The completion of more asset disposals and the retention of profits should help to lower gross gearing towards the target level of 0.3x. But we see potential SIME MK Sector: Plantation EPS dilution of up to 3.1%. The impending placement of new shares at a maximum discount of 5% is also likely to cap upside for a stock RM7.90 @ 7 September already trading at an overvalued level. Maintain SELL with a slightly lower TP of RM7.03. Sime Darby 2016 SELL (maintain) Downside: 11.0% Proposed private placement to repay borrowings, etc A proposed private placement (PP) through a book-building process and a maximum discount of 5% to VWAP is to repay borrowings, fund capital Price Target: RM7.03 Previous Target: RM7.16 expenditure, and strengthen the group’s shareholder funds. Proposed PP should lower gross gearing closer to target of 0.3x The proposed PP is expected to cut group gross gearing from 0.44x as at the end-FY16 to 0.38x and fall further towards the target level of 0.30x after the completion of more asset disposals and the retention of profit. (RM) 9.50 9.00 8.50 8.00 7.50 7.00 At the indicative price of RM7.51, potential EPS dilution of 3.1% Based on the indicative price of RM7.51 and an interest rate of 3.4% on borrowings, we see a potential EPS dilution 3.1% after the proposed PP enlarges the issued share capital of SIME to 6,643.3m shares. TP tweaked lower to RM7.03 We maintain our FY17-19 core net profit forecasts pending the completion of the proposed private placement and the final issue price of the placement shares in 4Q16. We slightly lower our net EPS forecasts and TP after incorporating the end-FY16 issued share capital of 6,327.1m shares. Maintain SELL The potential EPS dilution can be offset by a higher CPO ASP (unless negated by lower production) or contributions from the other core divisions. But the impending placement of new shares at a discount to the market price is likely to cap upside for a stock already trading at an overvalued level. Maintain SELL. Key risks to our call include a significant recovery demand for and prices of core products (including CPO) and services. 6.50 6.00 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Price Performance Absolute Rel to KLCI 1M +3.9% +2.5% 3M +3.1% +1.4% 12M +7.2% +0.5% Stock Data Issued shares (m) 6,327.1 49,983.9/12,288 Mkt cap (RMm)/(US$m) Avg daily vol - 6mth (m) 4.6 52-wk range (RM) 7.0-9.1 Est free float 27.5% BV per share (RM) 5.13 P/BV (x) 1.54 Net cash/ (debt) (RMm) (2Q16) (13,056) ROE (FY17E) 8.4% Derivatives No Shariah Compliant Yes Key Shareholders Earnings & Valuation Summary FYE 30 Jun 2015 Revenue (RMm) 43,728.7 EBITDA (RMm) 5,004.1 Pretax profit (RMm) 3,145.4 Net profit (RMm) 2,430.0 EPS (sen) 39.1 PER (x) 20.2 Core net profit (RMm) 2,196.2 Core EPS (sen) 35.4 Core EPS growth (%) (23.2) Core PER (x) 22.3 Net DPS (sen) 25.0 Dividend Yield (%) 3.2 EV/EBITDA (x) 12.7 2016 43,962.8 5,437.7 3,438.5 2,408.8 38.8 20.4 1,786.1 28.8 (18.7) 27.5 27.0 3.4 11.4 Chg in EPS (%) Affin/Consensus (x) 2017E 46,758.0 4,923.5 3,997.1 2,776.8 43.9 18.0 2,776.8 43.9 52.6 18.0 30.0 3.8 12.8 2018E 48,979.9 5,222.6 4,346.2 3,037.2 48.0 16.5 3,037.2 48.0 9.4 16.5 30.0 3.8 12.2 2019E 49,481.1 5,323.8 4,463.2 3,125.8 49.4 16.0 3,125.8 49.4 2.9 16.0 30.0 3.8 11.9 (1.8) 1.3 (1.8) 1.2 (1.8) 1.2 Skim ASB EPF PNB 42.6% 11.5% 6.2% Source: Affin Hwang, Bloomberg Ong Keng Wee (603) 2146 7536 kengwee.ong@affinhwang.com Source: Company, Affin Hwang estimates, Bloomberg Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 1 of 5
2. 8 September 2016 Potential EPS dilution of up to 3 .1% Proposed private placement to repay borrowings, etc On 23 June, SIME announced a proposed private placement (PP) of up to 5% of its existing issued and paid-up capital or up to 316.4m placement shares through a book-building process. The net placement proceeds, after estimated expenses of RM14.0m, would be utilised to repay group borrowings to reduce interest costs and lower group gearing as well as to fund capital expenditures for its plantation, motors and property business. The proposed PP would also strengthen the group’s shareholder funds and financial position. The RM950m set aside for capital expenditure would be utilised for planting and replanting of oil palm and rubber trees, the expansion of motors business facilities, and equity injection for the Battersea JV in London and investment in the Saizen Real Estate Investment Trust (REIT). Fig 1: Proposed utilisation of proposed private placement proceeds Description of utilisation (1) Repayment of borrowings of Sime Darby and its subsidiaries Estimated timeframe of utilisation Within 12 months Amount (RMm) 1,200.0 % of total 50.5% (2) Capital expenditure for the plantation (RM300m), motors (RM300m) and property (RM350m) businesses Within 12 months 950.0 40.0% (3) (4) Working capital Defray estimated expenses relating to the proposed placement Within 12 months Within 3 months 211.8 14.0 8.9% 0.6% Total gross proceeds 2,375.8 Source: Company PP would lower gross gearing closer to target level of 0.30x Based on the indicative placement price of RM7.51 (a 5% discount to the 5-day Volume Weighted Average Price [VWAP] of RM7.90 during the announcement) and utilisation plans, the proposed PP is expected to cut group gross gearing from 0.44x as at the end-FY16 to 0.38x, and raise net asset per share from RM5.13 to RM5.24. Group gross gearing is expected to fall towards the target level of 0.30x after the completion of more asset disposals and the retention of profit. With regard to the asset disposals, a pending transaction is the disposal of certain industrial properties in Australia to Saizan REIT for cash and new Saizen REIT units, which can be easily monetized. Fig 2: Potential impact of Proposed Private Placement on issued share capital, gearing and net asset No of Total Total Total Gross Net shares equity borrowings cash gearing gearing ratio ratio (m) (RMm) (RMm) (RMm) (x) (x) As at 30 June 2016 6,327.1 35,644.6 15,831.2 3,520.9 0.44 0.35 After proposed private placement 6,643.4 38,006.4 14,631.2 3,520.9 0.38 0.29 (% change) 5.0% 6.6% -7.6% 0.0% -13.6% -17.1% Net asset per share (RM) 5.13 5.24 2.1% * Based on indicative issue price of RM7.51 per placement share Source: Company Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 2 of 5
3. 8 September 2016 At the indicative price of RM7 .51, potential EPS dilution of 3.1% The maximum discount for the issue price of the placement shares has been fixed at not more than 5% to the VWAP for the five market days immediately prior to the price-fixing date. Subject to demand, the bookbuilding process may narrow the final discount. Based on the indicative price of RM7.51 and an interest rate of 3.4% on borrowings, we see a potential EPS dilution of 3.1% after the proposed PP enlarged the issued share capital of SIME to 6,643.3m shares. Fig 3: Potential EPS dilution at various prices per placement share (RMm) Current Assumed price per placement share * (RM) 7.51 7.58 7.66 7.74 -4.9% -4.1% -3.0% -2.0% 316.4 316.4 316.4 316.4 2,361.8 2,384.0 2,409.3 2,434.6 1,200.0 1,200.0 1,200.0 1,200.0 30.6 30.6 30.6 30.6 17.4 17.8 18.1 18.5 2,776.8 43.89 2,824.8 42.52 -3.11% Discount to 5-day VWAP of RM7.90 No of placement shares (m) Total net proceeds Repayment of borrowings After-tax interest savings (@3.4% p.a.) After-tax interest income (@3.0% p.a.) # FY17 core net profit forecast FY17 EPS (sen) Potential dilution in EPS 2,825.2 42.53 -3.10% 2,825.6 42.53 -3.09% 2,825.9 42.54 -3.08% * Indicative issue price per placement share is RM7.51 # Money market rate applied to half of balance of net proceeds after repayment of borrowings Source: Company, Affin Hwang estimates TP tweaked lower to RM7.03, maintain SELL We maintain our FY17-19 core net profit forecasts pending the fixing of the final issue price per placement share and the completion of the proposed PP in 4Q16. Our net EPS forecasts are however trimmed by 1.8% after incorporating the end-FY16 issued share capital of 6,327.1m shares. Based on an unchanged PE target of 16x and the revised FY17E EPS of 43.9 sen, our target price for SIME is hence lowered from RM7.16 to RM7.03. The potential EPS dilution of up to 3.1% can be offset by a RM56/MT increment in CPO ASP (unless negated by lower production as July production is down 8.9% mom) or higher contributions from the other core divisions. But the impending placement of new shares at a discount to the market price is likely to cap upside for a stock already trading at an overvalued level. Maintain SELL. Key risks Key risks to our SELL rating include: (i) a significant recovery in global economic growth and/or favourable policies in its key markets boosting demand for core products and services; and (ii) lower-than-expected production of vegetable oils and/or changes in regulations boosting CPO prices. Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 3 of 5
4. 8 September 2016 Sime Darby – FINANCIAL SUMMARY Profit & Loss Statem ent FYE 30 June (RMm ) Revenue Operating expenses EBITDA Depreciation EBIT Net int income/(expense) Associates' contribution Pretax profit Tax Minority interest Net profit 2015 43,729 (39,554) 5,004 (1,462) 3,420 (274) (122) 3,145 (597) (119) 2,430 2016 43,963 (41,148) 4,815 (1,748) 3,116 (300) 48 2,816 (216) (191) 2,409 2017E 46,758 (42,089) 4,923 (991) 4,082 (85) 150 3,997 (1,039) (182) 2,777 2018E 48,980 (44,011) 5,223 (991) 4,381 (35) 150 4,346 (1,130) (181) 3,037 2019E 49,481 (44,410) 5,324 (991) 4,482 (19) 150 4,463 (1,160) (180) 3,126 Balance Sheet Statem ent FYE 30 June (RMm ) Fixed assets Other long term assets Total non-current assets 2015 23,607 12,700 36,307 2016.0 24,904 14,544 39,448 2017E 25,954 14,564 40,518 2018E 27,004 14,564 41,568 2019E 28,054 14,564 42,618 Cash and equivalents Stocks Debtors Other current assets Total current assets 3,645 9,702 7,273 5,311 25,931 2,921 9,362 6,639 5,789 24,711 3,081 9,576 7,046 5,330 25,032 3,241 10,014 7,381 5,393 26,029 3,842 10,104 7,456 5,393 26,795 Creditors Short term borrow ings Other current liabilities Total current liabilities 8,324 6,318 943 15,585 8,001 4,419 963 13,383 8,184 4,719 1,106 14,009 8,558 5,019 1,140 14,717 8,636 5,319 1,151 15,106 Long term borrow ings Other long term liabilities Total long term liabilities Shareholders' Funds Perpetual sukuk Minority interests 11,745 3,337 15,082 30,568 0 1,003 11,412 3,719 15,132 32,479 2,230 936 11,612 3,406 15,018 33,357 2,230 936 11,812 3,406 15,218 34,497 2,230 936 12,012 3,406 15,418 35,724 2,230 936 Cash Flow Statem ent FYE 30 June (RMm ) EBIT Depreciation & amortisation Working capital changes Cash tax paid Others Cashflow from operation Capex Disposal/(purchases) Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Net interest income/(exp) Dividends paid Others Cash flow from financing 2015 3,420 1,219 0 (958) (588) 3,093 (1,258) 488 (6,458) (7,227) 1,946 0 (586) (974) 2,958 3,345 2016 3,116 1,748 105 (216) 421 5,174 (3,024) (322) 154 (3,192) (2,232) 2,200 (454) (1,677) 0 (2,163) 2017E 4,082 991 (442) (1,039) (454) 3,138 (1,793) 50 316 (1,427) 500 0 (400) (1,898) 0 (1,798) 2018E 4,381 991 (120) (1,130) (495) 3,628 (1,793) 50 317 (1,426) 500 0 (350) (1,898) 0 (1,748) 2019E 4,482 991 (120) (1,160) (524) 3,669 (1,793) 50 334 (1,410) 500 0 (350) (1,898) 1 (1,747) 2,150 1,345 1,834 1,876 Free Cash Flow 1,836 Source: Company, Affin Hwang estimates Key Financial Ratios and Margins FYE 30 June (RMm ) 2015 Grow th Revenue (%) (0.4) EBITDA (%) (6.0) Core net profit (%) (20.6) Profitability EBITDA margin (%) PBT margin (%) Net profit margin (%) Effective tax rate (%) ROA (%) Core ROE (%) ROCE (%) Dividend payout ratio (%) Liquidity Current ratio (x) Op. cash flow (RMm) Free cashflow (RMm) FCF/share (sen) Asset m anagenm ent Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Capital structure Net gearing (%) Interest cover (x) Quarterly Profit & Loss FYE 30 June (RMm ) Revenue Operating expenses EBITDA Depreciation EBIT Net int income/(expense) Associates' contribution Exceptional items Pretax profit Tax Minority interest Net profit Core net profit Margins (%) EBITDA PBT Net profit 2016 2017E 2018E 2019E 0.5 (3.8) (18.7) 6.4 2.3 55.5 4.8 6.1 9.4 1.0 1.9 2.9 11.4 7.2 5.6 19.0 3.9 7.4 7.7 63.9 11.0 6.4 5.5 7.7 3.8 5.7 7.7 69.6 10.5 8.5 5.9 26.0 4.2 8.4 8.3 68.4 10.7 8.9 6.2 26.0 4.5 9.0 8.7 62.5 10.8 9.0 6.3 26.0 4.5 8.9 8.6 60.7 1.7 3,093 1,835.5 30 1.8 5,174 2,150.0 35 1.8 3,138 1,344.9 21 1.8 3,628 1,834.2 29 1.8 3,669 1,875.6 30 61 81 69 55 78 66 55 75 64 55 75 64 55 75 64 47.2 12.5 39.7 10.4 39.7 48.0 39.4 125.2 37.8 232.9 4Q15 1Q16 2Q16 3Q16 4Q16 12,864.5 10,173.1 11,828.9 10,232.8 11,728.0 (11,258.4) (9,246.3) (10,938.8) (8,749.9) (10,213.6) 1,606.1 926.8 890.1 1,482.9 1,514.4 (453.4) (326.7) (368.3) (647.2) (405.7) 1,152.7 600.1 521.8 835.7 1,108.7 68.0 32.9 38.1 49.3 33.9 53.9 16.9 19.0 20.4 (7.9) 188.9 117.2 (87.2) 279.6 313.1 1,151.5 471.0 463.5 791.7 1,088.8 (123.4) (110.9) (139.6) (99.2) 128.4 (25.1) (31.7) (50.6) (29.0) (80.1) 1,003.0 328.4 273.3 663.5 1,137.1 814.1 211.2 360.5 383.9 824.0 12.5 9.0 7.8 9.1 4.6 3.2 7.5 3.9 2.3 14.5 7.7 6.5 12.9 9.3 9.7 Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 4 of 5
5. 8 September 2016 Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD Total return is expected to be between -5% and +10% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) (“the Company”) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies or transactions discussed in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Company’s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company. The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, 50450 Kuala Lumpur. www.affinhwang.com Email : affin.research@affinhwang.com Tel : + 603 2143 8668 Fax : + 603 2145 3005 Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 5 of 5